Mutual Fund Holdings in NSE-Listed Firms Reach Record High as FPI Share Drops to 13-Year Low

The ownership structure of India Inc. is experiencing a significant transformation, with foreign portfolio investors (FPIs) reaching their lowest stake in NSE-listed companies in 13 years. In contrast, domestic mutual funds (MFs) and retail investors are making substantial gains. 

As per the latest India Ownership Report (December 2024), FPIs’ share in NSE-listed firms has dropped to 17.4%, a level last seen in 2011. Meanwhile, MFs and individual investors have made history by collectively holding 18.2% of the market—surpassing FPIs for the first time since 2006.

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The Great Ownership Shift

Promoters, traditionally the dominant stakeholders in NSE-listed companies, have witnessed a consecutive quarterly decline in ownership, which now stands at 50.4%. A significant portion of this reduction stems from government holdings, which have fallen by 53 basis points (bps) to 10%. 

This decline has coincided with a sharp downturn in PSU stocks, leading to a 16.1% drop in the Nifty CPSE index during the December quarter.

Conversely, mutual funds have continued their remarkable upward trajectory, with their market share reaching a record 10%, driven largely by consistent systematic investment plan (SIP) inflows. In the December quarter alone, MFs infused ₹1.5 lakh crore into equities, reinforcing their role as key market stabilizers.

FPIs Withdraw, Retail Investors Step In

FPIs saw massive outflows, pulling out $11.9 billion in the December quarter—the largest withdrawal in the past 10 quarters. Their stake in NSE-listed firms declined by 30 bps, while their weightage in Nifty 50 stocks reached a 12-year low of 24.3%. The retreat was particularly noticeable in large-cap stocks, even as FPIs maintained an overweight stance in financials while reducing their exposure to consumer staples, energy, and materials.

On the other hand, direct ownership by individual investors climbed to 9.8%, marking a 70-quarter high. When combined with mutual fund holdings, retail investors now account for 18.2% of the total market—overtaking FPIs for the first time in nearly 20 years. Over the past two years alone, retail investors have injected ₹30 lakh crore into equities, demonstrating growing confidence in domestic markets.

The Rise of Mid- and Small-Cap Stocks

An emerging trend from the report is the decreasing institutional ownership concentration in Nifty 50 stocks. The proportion of Nifty 50 firms in institutional portfolios has dropped to a historic low of 58.7%, as funds increasingly pivot toward mid- and small-cap stocks, which outperformed during the December quarter.

This trend is also reflected in the Herfindahl-Hirschman Index (HHI), which signals a broadening diversification into mid- and small-cap equities. Notably, FPIs, which once focused primarily on large-cap stocks, now have investments in over 1,845 companies—up from 1,200 just four years ago.

Looking Ahead

The data presents a clear message: India’s equity markets are no longer primarily influenced by foreign capital. With MFs reaching new highs and retail investors expanding their presence, domestic liquidity is emerging as a formidable force. While FPIs still hold influence, their shrinking stake indicates that local investors are increasingly shaping India’s financial markets.

As this transformation unfolds, one thing is certain—India’s equity ownership landscape is undergoing a historic transition, with retail investors at its core.